Nobody knows your business better than you do. So, when we wanted to look at the future of underground construction, we sought out three guys who live it every day. None of them claims to have a crystal ball, but their experience and expertise speak for themselves.

Rental
UG: What general trends will we see in the rental market?

Pedersen: Rental rates will increase in 2007, partly due to increases in fixed costs. Equipment prices have risen with the increased costs of raw materials and fuel. Increased labor costs—minimum wage increase, workman's compensation insurance and medical benefits—will also have an effect on rental rates.

Fleet sizes will increase slightly, but the trend will be toward turning over older equipment that no longer meets the new engine-emissions regulations of the Air Resources Board.

As the purchase price, maintenance and regulated fees on equipment continue to rise, small- to medium-sized contractors will invest more in rentals than ownership. Leasing of equipment from one to five years will continue to be a viable alternative to ownership for large contractors.

UG: What are the biggest opportunities for the rental industry in the coming year?

Pedersen: To gain market share, find a niche and fill it. With costs of equipment going up for everyone, it may be more advantageous to rent than own larger or more specialized pieces of equipment. Rental houses may consider a move into equipment that is less available for the average company to purchase, or rental equipment that is higher in quality and more specialized.

UG: What challenges can rental stores expect in 2007?

Pedersen: The pool of people that want to work on equipment is shrinking in the U.S., as school systems place less emphasis on hands-on mechanics. In-house training is one answer. It has always been a part of employment, but training now will have to begin with the basics of safety in the workplace and work up from there. More time and costs will be involved, including the use of outside sources.

Customers will need equipment delivered more often due to the increased costs in labor, fuel and liabilities. My advice is to become a delivery-capable company.

Rob Pedersen is vice president and general manager of A Tool Shed, an independent, family-owned chain of rental stores in business since 1945. Based in Campbell, California, A Tool Shed maintains seven stores in four counties throughout the bay area.

Fiber-to-the-Home
UG: What general trends will we see in FTTH?

Render: The North American Fiber-to-the-Home (FTTH) transition is definitely underway. There are currently nearly six million homes passed with FTTH, and more than one million homes connected. A milestone, indeed, but this is only the beginning since merely one percent of all households are served by even one FTTH provider to date. The good news is that this new fiber access build does not appear to be setting up as a boom and bust cycle, like the long-haul fiber building frenzy of 1998-2002. FTTH should be strong for the next 20 years or so.

UG: What will be the biggest opportunities for FTTH contractors in the coming year?

Render: In 2007, existing projects should continue to build at their current pace—though some believe the majority of the activity will occur in the second half of the year. Other carriers may finally get active in their projects to move fiber closer to the home, and have already been quietly ramping up true FTTH activity in new housing developments. The number of smaller local service providers starting FTTH projects will continue to grow steadily, and several municipal projects will be building out in 2007.

2007 is an important time in this fledgling market for the underground industry to help set the tone for the next quarter-century. Continuing efforts should be placed on assisting those deploying FTTH to complete jobs with more productivity and lower costs [while maintaining profitability].

UG: What challenges can this industry segment expect in 2007?

Render: Financial analyst pressure is causing some providers to choose aerial builds whenever possible, and FTTH providers are constantly seeking price concessions from contractors. This, in turn, sometimes leads to the use of subcontractors with older equipment as well as the use of inferior underground methods like hand spading.

Mike Render is president of Render, Vanderslice, and Associates (RVA), North America's leading market research authority on Fiber-to-the-home. RVA has produced numerous reports for the broadband industry, and its research and testimony have influenced FCC policy related to broadband initiatives.

Utility Construction
UG: What general trends will we see in utility construction?

Banning: The natural gas industry is making significant investments in large-scale cast iron and bare steel replacement programs. Not only are these programs strongly supported by local regulatory agencies, they also provide customers with decreased future operating and maintenance expenses as well as a quantifiable return on their investment.

Residential, commercial, and highway construction are key drivers of our marketplace. Increasing regulatory requirements, such as pipeline integrity and new energy legislation, also play a key role.

With a strong economy in 2007 and the EPA mandates that have been placed on many municipalities, we expect the water and wastewater rehabilitation market to experience additional growth in the coming year. We believe that various trenchless technologies will continue to gain acceptance in the municipal marketplace and become the preferred method of construction. Highway and road construction also should continue to be strong. Many road projects require the relocation of underground utilities, forcing the demand for utility construction to increase.

Overall, the key drivers of our marketplace are strong and indicate increased spending and opportunities for 2007. Cost of energy and political influence, however, may threaten growth in utility construction.

UG: What will be the biggest opportunities for utility contractors in the coming year?

Banning: Internally, we can improve our safety, quality, training and productivity. Partnering with customers who are focused on the same aspects of our business will reduce cost, improve operations and create a more productive and trained workforce. External factors such as the significant increase in the construction of interstate natural gas pipelines, the desire to produce clean electricity from natural gas, and the search for alternate fuels in the production of ethanol should provide opportunities as well.

UG: What challenges can this industry segment expect in 2007?

Banning: Without a doubt, our greatest challenge in 2007 and beyond is the shortage of a trained, qualified workforce. We will be competing with other industries for the workforce of the future, and many young professionals are choosing careers in technologies and life sciences. The composition of the future workforce does not favor the construction industry. Miller and other companies within our industry need to be actively working on creative solutions to fill this future gap in our workforce.

Doug Banning is CEO of Miller Pipeline Corporation based in Indianapolis, Indiana. With 12 regional offices and more than 1,000 employees, the company provides construction, maintenance and rehabilitation services to natural gas utilities and the municipal and industrial infrastructure markets throughout North America.

Published in the Spring 2007 issue of The Underground.